Financial Demise of OPEC Due to Decreasing Oil Prices Could Lead to Significant Impact on World Economy, According to June ABI Journal Article
Alexandria, Va. — Decreasing oil prices and diminishing reliance on oil have created a financial crisis for most Organization of the Petroleum Exporting Countries (OPEC) members, and that struggle could adversely affect the world economy, according to an article in the June ABI Journal. “All but two OPEC member nations are on a collision course with financial ruin,” writes J. Michael Issa of GlassRatner Advisory & Capital Group LLC (Irvine, Calif.) in his article “OPECalypse Now and the World Economy.” “The total sovereign debt of OPEC is approaching the level of subprime mortgage debt that rocked the world on its economic axis in 2008.”
Since 2014, the price of crude oil has suffered a major drop of approximately 60 percent from its peak of $111.80 and currently hovers around $60, according to Issa. “Budget deficits as a percentage of GDP are generally double-digit, levels that are clearly unsustainable,” he writes. “Cash and investment reserves are being depleted, and sovereign debt is being incurred to delay the day of reckoning.”
Though OPEC accounts for 44 percent of the oil production of the world, Issa cited a number of reasons for their financial struggles, including:
- U.S. has doubled its production of crude over the past decade by exploiting the development of shale oil.
- Slowing economic growth in developing countries limits the demand for oil
- The world is approaching a point of peak demand, after which demand for crude will begin to decline into the foreseeable future.
- Major efforts by governments around the world to promote electric or hybrid vehicles has also limited the demand growth for oil.
With OPEC member economies tied so tightly to the oil industry, Issa writes that certain countries are starting to take steps to implement stricter fiscal policies in an attempt to balance their budgets with lower oil revenues. “This poses other problems such as social unrest and the difficulty of achieving economic growth in non-oil sectors” he writes.
Despite the challenges associated with moving away from fiscal policies and industries that are reliant on the oil industry, Issa writes that OPEC members must implement changes immediately.
“A time bomb of considerable proportion is ticking with no foreseeable solution in sight,” Issa writes. “The impact of this problem has every likelihood of causing considerable impact to the world’s economy and developed nations.”
To obtain a copy of “OPECalypse Now and the World Economy,” please click here.
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